Top Ten Reasons Goldman Sachs Would Be Dead Without Government Help

10) TARP

9) TALF

8) Being allowed by the Government to become a Bank Holding Company (thus gaining an implicit government guarantee) overnight;

7) Being able to issue FDIC insured debt as a bank holding company;

6) Temporary SEC ban on shortselling when investors starting selling Goldman short during the height of the crisis and Goldman changed its position on short sales and asked the SEC for a ban;

5) Getting paid 100 cents on the dollar as a counterparty to AIG credit default swaps as a result of the government's AIG bailout that prevented AIG from going bankrupt;

4) The revolving door between the Fed, Treasury and Goldman that made Goldman privy to non-public information regarding the government's deliberations during the crisis;

3) Selective government intervention, or lack thereof, that allowed some of Goldman's competitors to fail, most notably Lehman Brothers, thereby bolstering Goldman's trading positions;

2) Being allowed to actively market and sell the toxic assets at the heart of the crisis while at the same time selling them short and eliminating them from their balance sheet;

1) If murder wasn't illegal mainstreet would have killed everyone at Goldman by now for being tone deaf while doing God's work.

Death of the Dollar

Funny how the dollar is supposed to be so weak but everyone runs to it when global economic catastrophe looms. Why is that? A panicked sense of tradition? The size of our military? A capitalist legal system? Then when the storm clears everyone says it was a nice visit but now they have to go.

Bearing Scalia's Cross

Ahh, Justice Scalia, just when I was going to lay off you for a while you paint a big bulls eye on your forehead with an intemperate outburst about how a war memorial cross on what was once public land is not an establishment clause violating religious symbol but a one size fits all commemorative symbol. Scalia's outburst was in reaction to an ACLU lawyer upstaging Scalia by pointing out, to laughter in the courtroom, that Scalia's argument that the cross was a generic commemorative symbol in the memorial context made no sense in light of the fact that there is a dearth of crosses in Jewish cemeteries. The ACLU lawyer's riposte was in reaction to Scalia's smug question as to whether it would be better if instead of a cross there was some sort of amalgamation of the cross, the star of David, and Islam's star and crescent. Because you know, all dead soldiers belong to one of the religions of Abraham and there are no atheists in foxholes. Scalia emphatically argued that crosses in this context aren't really Christian symbols because they're all over the place in cemeteries, everybody does it, so it's really not religious symbolism but popular symbolism that is not subject to establishment clause challenges. Scalia is all about majority rule on this point, the minority can and is going to hell as far as he's concerned. No doubt if the case was about a secular attack on Catholicism for its seemingly entrenched pederasty and ritual cannibalism he would rush to protect minority rights. Weak. What happened to you Scalia? I used to have a grudging respect for you. Were you just fronting in the Texas flag burning case?

Defending Polanski

As a father of two children I have no sympathy for what Polanski did and believe he needs to face the music without any "but I'm a great artist" mea culpas. If he had any guts he'd waive extradition and confront the situation head on. But as a defense lawyer I can't help note that a lot of what has been written, pro and con, about Polanski misconstrues the procedural record and the weight one should give to grand jury testimony.

Some basic facts. He never had a trial and has never been sentenced. He pleaded guilty to statutory rape to avoid trial on more serious charges and then was put under psychiatric observation for 42 days for the purposes of preparing a sentencing report. When Polanski decided that the Judge was not going to honor the terms of Polanski's deal with the prosecution (a plea deal does not bind a court because the deal is only between the prosecution and the defense) and just give him probation he fled the country in the face of a maximum twenty year sentence.

Polanski's detractors (including me) repeatedly cite to the victim's grand jury testimony for the facts of Polanski's rape ("the so called crime") of a 13 year old carried out in part by plying her with champagne and quaaludes. But caution is in order when citing to grand jury testimony as proof of facts. When you read the grand jury testimony of the victim it's quite obvious that she was coached. This doesn't mean it's not true, but doubtless the DA sat the victim down for witness prep before her testimony. It is perfectly legitimate to prepare a witness, particularly a rape victim, for the experience of testifying as long as you don't tell them what to say. But it's not always so easy during a prep session to avoid shaping a witnesses testimony to conveniently fit your case. Particularly when you are dealing with a young and probably impressionable witness. The transcript reads as if the prosecutor had gone over his line of questioning with the victim before hand. Whether everything that she testified to was accurate is difficult to determine however because there was no cross-examination. Grand jury witnesses are not subject to cross-examination. Grand juries are convened to determine if there is sufficient evidence supporting a finding of probable cause for an indictment, not to make final findings of fact. The prosecutor runs the show exclusively. So when you're reading the grand jury testimony, you're reading the Prosecutor's unchallenged narrative exclusively, and the prosecutor is always striving for the most dramatically compelling narrative possible to justify the charges. Thus grand jury testimony should always be read with some skepticism.

Simplistic Scholasticism

Justice Scalia is a fan of the old canard that because lawyers don't produce anything they lack value. Or to be fair to his position, he maintains that great minds are wasted on the legal profession because the minds would be put to greater use producing, say, a car that runs on solar energy or some other thing that under his feudal (Catholic) ideology adds value to society. Implicit in his view is the proposition that only those that produce useful commodities have value for society. This view has some bizarre implications. Under it, for example, doctors have no value. Same for anyone who has a "great mind" (whatever that is) who chooses to provide a service for society rather than a commodity.

Scalia's myopia has earned him many fans who cling to the simplicity of his absolutist statements because they are easily digestible and don't upset the orthodox stomach. But enough of this "kill all the lawyers" crap. Justice Scalia, if you have such a dim view of your profession and such a high view of your acuity, please resign your post as Supreme Court justice and go invent something of value. Go back to the impotent (non-producing) outposts of academia from which you came as you obviously have little experience in the real world of lawyering beyond the asphyxiating cloister you operate in. Litigators and transactional lawyers add value to our society every day.

Litigators facilitate the non-violent resolution of the innumerable conflicts that arise in our society every day. Don't take that for granted. One does not have to look too far in the world to find examples where violence is used to resolve a disagreement over a transaction, or where the government executes an innocent person as a convenient scapegoat. Adversarial proceedings in court are a form of ritualized fighting that resolves conflict without bloodshed. On more than one occasion I have put an end to an abusive husband's reign over his wife by using the tools that the law provides me. Don't tell me that has no value. By so doing perhaps I've even freed a "great mind" to go and invent something useful. And litigators have often served as a bulwark against the tyranny of a government run amok. As such litigators play a crucial role in our civilization.

As for transactional lawyers, how is the purported "great mind" going to actually produce their society changing commodity without the legal structures necessary to raise the capital necessary to produce the commodity on a scale large enough to impact society? Corporations, partnerships, limited liability partnerships, limited liability companies, subscription commitment facilities and other legal entities facilitate the raising and free flow of capital necessary to the production of any commodity on a large scale. And it is transactional lawyers who create these entities, as well as securing the rights of the "great mind" via the private law of contract that allows the commodity producer to profit from their invention. Without a contractual guarantee of remuneration for your invention there is little incentive to create one. Why waste your time on something that won't put food on your table?

I could go on and on by the point is made. Grade school Marxist economics that fetishizes commodities over service is misguided and unworthy of a "great mind." Another day in my love/hate relationship with Justice Scalia.

Enemy of the People

"Capitalism is the enemy of democracy." - Michael Moore

This is where Mr. Moore and I part ways. No economic system is equitable but non-capitalist economic theories have wrought worldwide bloody havoc. Certainly unbridled Capitalism is rapacious. Imperialistic. Exploitative. Enslaving. Just like the rest. But that's just an argument for a bridle given Capitalism’s virtues versus the empirical disasters that non-capitalist systems have proven.

Capitalism is unique because it can order individual self-interest in a way that failed systems like communism can't. Capitalism admits the overwhelming influence of two fundamental principles of human psychology that the other theories ignore or misconstrue at their peril: self-interest and the desire for freedom. Admitting and accepting that all humans primarily act in their own self interest frees Capitalism from utopian social engineering that in seeking to mitigate self interest in the name of equity only exacerbates inequity by providing the powerful with the means for suppression. Capitalism instead allows self-interest free reign within the boundaries of the rule of law thereby maximizing freedom.

The desire for freedom from hunger, want, disease, the elements, and the freedom to chose the life one wants to live is something that all economic theories strive for but Capitalism has proven more successful at than any other. Capitalism, unlike most of its competitors, was not theorized and then implemented; it was implemented and then theorized. This explains its empirical success. It evolved in the real world, and not at the desk of an academic. It successfully feeds billions of people daily. More people were lifted out of poverty by China’s turn towards Capitalism than at any other time in the history of the world.

The butcher does not sell you his meat out of benevolence as Adam Smith memorably said. We work for money to survive and to be free. Money frees us from agrarian barter and allows us to pursue our life unshackled from having to produce our subsistence. And attempts to do away with sale transactions, money, and the like by eliminating private property miserably fail because they prevent the individual from controlling the objects in the material world necessary to her survival and satisfaction. If anyone can take without consequence the tools you work with or the food produced by your labor your freedom to control your world has been diminished and you are subject to the often-wicked caprice of others who invariably act in their own self-interest despite the utopian fantasies of wistful theorists.

Private property creates freedom precisely because it protects self-interest and the freedom of the individual to chose what to do with their property, including the freedom to exchange it for value in mutually beneficial exchanges between contracting private parties with a minimum of governmental interference. Like the butcher does when he sells you his meat. This benefits society as a whole, as any empirical comparison between the world’s capitalist and non-capitalist societies demonstrates.

Finally, it is simplistic to say Capitalism is brutal and amoral. Capitalism as an empirical phenomena is constantly evolving: slavery is now illegal; the labor movement tempered Capitalism’s exploitation, and a body of law emerged recognizing equality and freedom of choice in a world awash in castes and inequality. Of course there is much work to be done (and I suspect this is what Moore’s movie is really about), but I’d much rather stick with a system that actually feeds people than ones that have only produced despotism and scarcity.

Teabirther Constitutionalism

Listening to the latest paranoid political fringe of Teabaggers and Birthers discuss the Constitution I find that I share some of their constitutional views. I support judicial review, that ultimate negation of the purported popular will by judicial fiat by unelected life time justices of the Supreme Court. It's not always perfect (see. e.g., Dred Scott), but it has proven effective in preserving individual liberties in the First, Fourth, Fifth, Sixth and Fourteenth Amendment contexts. The Teabirthers seek the judicial nullification on constitutional grounds (Article 2 sec. 1) of the democratic decision of the People as to their President. This is the ultimate act of judicial review. The Teabirthers want the Supreme Court to rule that the sitting President of the United States must step down. Radical. You don't get a more expansive view of judicial review than that. Too expansive for my tastes. Makes Roe v. Wade's judicial review look insignificant. Of course the Teabirthers ultimately fail because their view is unconstitutional under an unavoidable textualist reading of the Constitution. The Framers clearly intended the power to remove a President to reside with the People's representatives, not the judiciary. The power to remove a sitting President is solely vested in Congress through impeachment (Art I, secs. 2 & 3) and is not an Article III power delegated to the judiciary. This betrays the Teabirthers ignorance of the Constitution they so jealously guard. But I share their fervor for the Constitution.

I take solace that the Teabirther crowd is so angry that constitutional blasphemy is afoot. At least they are not citing biblical blasphemy (at least not all of them). I share their fervor for all things constitutional and their belief that the Constitution is what the living people say it is and not necessarily what the Framers allegedly said it was. After all, if they were textualists they'd have a hard time saying government health care or emergency (hopefully temporary) nationalizations of key industries and financial institutions are unconstitutional when the first sentence of the Constitution says one of its purposes is to promote the general welfare. And if keeping people from dying and preventing economic collapse isn't promoting the general welfare well let me know what is. But if you take a more plastic interpretation of the Constitution, one unmoored from its text, you could plausibly argue that some sort of liberty interest was being violated by government healthcare and industrial and financial nationalization. This view, however, is similar to the logic of Roe v. Wade and Miranda, decisions the teabirthers abhor. Thus goes the cognitive dissonance of their Constitutional theory.

Civil War

Civility was stillborn at the dawn of politics. So the frothing ad hominem nature of the recent debate on health care and the economy is not surprising. Nor is this country's trenchant racism coupling with rabid anti-communism anything new. The KKK has always hated niggers and communists equally. The spectrum has only shifted slightly in that black is the new red. It was naive to think that racism would dissolve in the glow of Obama's election.

Politicians have been calling each other liars since the birth of the Republic, but never has a Southern, confederate sympathizing representative called a black President a liar on the floor of the House. And precisely the fact that we've never had a black President until now amplifies Joe (not his real name) Wilson's tantrum. What's the answer to the question as to why we haven't had a black President until now? Racism, duh. Ignoring the historical context of a white southerner denouncing a black President in a House divided is not rational given the overwhelming history of slavery and apartheid in this country. Well over half a million Americans died in the civil war, to say nothing of the horrors of the Atlantic passage and the "peculiar institution." This is just not the same thing as booing a white President.

On the Use and Abuse of the Constitution for Life

Annoying but popular Wall Street Journal op-ed piece on how our next census will be unconstitutional because it's going to count illegal aliens. http://online.wsj.com/article/SB20001424052970204908604574332950796281832.html

My letter to the Wall Street Journal that's never going to be printed regarding an obvious problem with the viewpoint:

Mr. Baker's and Mr. Stonecipher's conclusory statement that Congressional representation based on a census of non-citizens is unconstitutional runs afoul the of the Constitution as originally written. The original Constitution explicitly provided for proportional congressional representation based, in part, on a census of non-citizens. That is precisely what the infamous "three fifths clause" provided for by allowing the southern slave states to count three fifths of their slave populations towards their representation in the House of Representatives. And as Chief Justice Roger Taney made clear in his decision in Dred Scott, slaves were not entitled to the rights of citizenship and were considered mere chattel. While I agree in principle that only citizens should be counted when it comes to congressional representation, it is far from clear to me that counting non-citizens towards representation is unconstitutional when the original constitution allowed for representation based on a tally of what was then considered property.

Religion is the Ultimate Materialism

When was the last time you saw a priest going hungry? Or lacking a roof over his/not her head? Just what exactly is the net worth of the Catholic Church? Or the net income produced by the Haj and the revenue stream generated by the merchants of Mecca since before Islam even existed (back when Mecca was a pagan pilgrimage site)? When was the last time you saw a destitute religious leader?

Yet a major critique by theists of atheism is that it leads to materialism. Ignoring for a moment that this doesn't logically follow because I can easily think of a couple of non-materialist philosophies that are consistent with atheism such as solipsism or Cartesian dualism, my response is essentially that the pot is calling the kettle black here. Religion is the ultimate form of materialism. That's why its so obsessed with controlling matters on earth. Why, if we are alive but a fleeting moment in relation to the eternity of heavenly reward promised true believers, are so many true believers fanatical about controlling those who do not share their beliefs? After all, according to the dominate religion in my part of the world, I'm going to burn in agony forever once I die because I'm an unbeliever.

I think the answer is a simple one: what the true believer is really trying to advance is their own material interest under the guise of some ethereal moral order that conveniently meets their earthly interests. This is why religion is also a form of hypocrisy. It cloaks its real concerns under an unverifiable, unquestionable, amorphous absolute that advances its material goals. It says it hates materialism when really that's the name of its game.

Finally, just what exactly is wrong with materialism? It feeds my family and adds value to my community as I pay my taxes, contribute to charity, improve my property and the like. Spiritualism feeds no one and is open to attack as a form of self indulgent hedonistic solipsism. And don't even get me started on the intellectual vacuity of the view that without God there is no morality, spirituality or "meaning." But that's another discussion.

Tortured Logic

What exactly could the Torture Memo authors be criminally charged with?  The New York Times makes it seems like criminally charging them is an option, but nowhere mentions a possible basis for a criminal indictment.  Criminal charges based on speech are extremely circumscribed in our society, as well they should be given our emphasis on freedom of expression.  Outside certain speech acts such as conspiracy, or fraud laws (which usually require more than just speech by requiring reliance by a listener on the fraudulent speech) there really isn't much of a hook to prosecute anyone for expressing their opinions.  I thought the Torture Memos were legal phlogiston when I first read them, but are they criminal?  No, just reprehensible and poorly reasoned and researched.  Failing to cite cases where the action you are analyzing was prosecuted by our government is sloppy and would get me fired in my job.  But let's take a deep breath before we criminally condemn people for expressing their opinion lest we start sliding down the slippery slope.

Toast

The reason Obama is smacking the auto industry (bye bye Wagoner) and not the financial industry is plain.  Dismantling the bomb derivatives created is not easy and re-engineering the auto industry is by comparison.  So off with their heads in Detroit, because at least we  understand cars. 

But They Said it Couldn't Be Done!

"So, before going any further let me emphasize that no serious danger of a derivatives-induced

financial collapse really exists."  Economics Nobel Laureate Merton H. Miller (University of Chicago) October 17, 1994.  

Good Toxic Assets Primer

Good collection of stories and graphics on Bloomberg giving background on the current financial mess.

What a Difference a Day Makes!

Boy did the markets save Geithner's ass today.  How long they will kiss it remains an open question.

There are two poles to this "toxic trash" debate: those who believe the trash is worthless (Krugman) and those who think it undervalued (Geithner).  I side with Geithner and hope his plan works.  The worthless camp ignores the fact that the "subprime" CDOs  et al. are securitized by real property.  Surely this real property hasn't lost all it's value?   Granted, the underlying assets (homes) have dramatically dropped in value.  But they haven't dropped 100%.  And even in the case of CDOs with foreclosured mortgages  the  CDO owners generally are in the front of the line when it comes to disbursement of foreclosure proceeds.  Furthermore, the default rate in the bundles of mortgages (hundreds even thousands) that make up CDO's  is nowhere near 100%.  That means that CDOs still have some sort of revenue stream; it's just the uncertainty surrounding the future default rate that makes the CDO's  untradeable.     The level of uncertainty surrounding the return on any given CDO prevents investment.  Thus you are left with a CDO that has physical and monetary value but no price.  This is largely a problem of faith, and is not one necesarily rooted in the lack of any value in the securitized assets comprising the CDO.  

What Geithner has that Krugman lacks is faith in the ability of the market to work out the value of the underlying securitized assets.  Krugman thinks that the market cannot work out the value of CDOs even though they are securitized by physical property and revenue streams from current mortgages.  It is impossible for Krugman for there to be a market solution to the market's crash.  For Krugman derivative trading is discredited.  I disagree.  Properly regulated derivatives like CDO's are useful because they ameliorate risk and free up capital.  This crash is like most others, a product of excess and not the result of some innate flaw in derivatives.  No one blames the 1929 crash on innate flaws in the concept of stock shares.  While I don't know if Geithner's plan will pan out, I do think Geithner's right to have faith in capitalism's ability to scavenge itself.  Capitalism is first a predator but second a scavenger. 

Well Said

http://moetkacik.tumblr.com/post/88269730/ugh

Tone Deaf

I work on Wall Street and have gotten pretty jaded at the level of stupidity, arrogance and greed that occurs.  Of course its not unique to Wall Street, Wall Street just has more money than most stupid, greedy, and arrogant communities and individuals.  But the fact that AIG has the balls to sue the U.S. government, its biggest stakeholder, over tax refunds, blows my mind.  How tone deaf can you get?  Wow.

Where are all the AIG Contracts Buried?

When do we get to see the AIG contracts?  As a lawyer I'm really curious as to their terms, who negotiated them, and what the parties knew when they were negotiated.  If they were negotiated when times were flush I'm inclined to be more forgiving, if negotiated when things were going down the crapper then Cuomo's fraudulent conveyance argument might have some bite.  Show me the contracts, I've already seen the money.

Breach

AIG finally broke down and released the names of its counterparties.  Nothing too shocking.  The usual suspects domestic and international.  Still wondering why we're even bothering to keep the middleman alive.  

On another note, every employment contract I've ever seen, and I've seen a few at this point, make bonuses discretionary.  What gives with these AIG contracts?  I'm a big believer in the sanctity of contract, and I think one of the reasons that the dollar has managed to stay relatively strong in this mess is the fact that our Federal Court system is a relatively unbiased forum for settling contract disputes.  Investors know they can enforce their rights in the U.S., which is more than you can say for China or Russia.  But the fact that AIG was allegedly writing contracts for such a large amount of non-discretionary bonuses is suspicious.  When were these contracts written and what did signatories know about the state of AIG's balance sheet when they signed them?  There may be legitimate ways to void these contracts, at least as to the bonuses, that don't tread on the sanctity of contract.  Fraud and public policy comes to mind.  After all, AIG would have gone under and wouldn't have been able to pay these bonuses without taxpayer money.

China to U.S.: Drop Dead

The Chinese Premier is concerned about the safety of U.S. Treasuries?  I don't have time to blog on this right now but want to say one thing.  The last time I checked the U.S. had never in its history defaulted on its bond issues.  As a matter of fact, one of the reasons Hamilton lobbied so hard for the Constitution was in order to establish strong credit for the U.S.  During the period from the ratification of the Constitution and now, China has seen multiple governments that have defaulted on their debt multiple times.  So while I'm happy that China is finally at the capitalist party, and gee they have a nice outfit, I think they've had a little too much to drink and are starting to talk smack that sounds somewhat silly given their track record.

Boy am I Glad That's Over

And lo, the banks were profitable again and money was lent as manna from heaven and the markets sighed deeply and began their weary climb back up.  Would you like to buy a bridge?  I don't believe anything those banks say about their balance sheets right now, they have powerful incentives to lie about it.  I sincerely hope I'm wrong and that we've turned a corner with the economy in terms of the credit crisis but I find much of the optimism surrounding the Dow's recent uptick ill founded.  History is littered with defunct financial institutions that gave rosy projections until their last breath.  As a matter of fact, isn't that what we saw with Lehman and Bear?  Don't believe the hype.

On Edge

For the moment the market has stabilized teetering on the edge.  

I am worried that Obama's economic action team is not up to the task.  Their dithering on toxic assets, the banks and AIG merely puts the solution off to another day.  This has the unpleasant effect of increasing the cost of any future solution.  Treasury is way too tentative, vague, oracular and  shockingly understaffed.    Economists are losing faith.  You know, the ones that told us the free market would set us free. 

And what's this crap about Citigroup making a profit?  Aren't they on taxpayer life support?  What kind of accounting are they doing that they're showing a profit?  Isn't that the kind of accounting that got us into this mess in the first place?

The market surge after the news that Citigroup was projected to be "profitable" in the first quarter displays the desperate psychology of a wounded beast.  Charging wildly in any direction at the slightest provocation.  This beast is far from done.  

Reason for Concern at Treasury

We're going to need a bigger boat.  The fact that our mission critical teams are understaffed right now is scary.  Compare what's going on in terms of staffing at Treasury with what's going on with staffing at State.  Maybe Hillary should have been Treasury Secretary instead.  If this continues like this for much longer we're doomed.  

Econapocalypse

The current econapocalypse has at its root two  intertwined parts, one a first cause and the other its unintended amplifier.  The government must attack both if it wishes to have any hope of halting this catastrophe.  Unfortunately, it currently is doing a dismal job by failing to either breathe life into the securitization markets or expeditiously wiping out the toxic derivatives paralyzing these markets.  And it is simultaneously failing to expeditiously contain the bonfire of credit default swaps copiously sold as insurance on these toxic derivatives of questionable value and the debt predicated on them.

  

The first cause is the meltdown in the subprime market and what it did to the value of securitized derivatives consisting of bundles of mortgages and other hyper inflated assets. There has been a near total collapse of these securitization markets since subprime mortgage defaults began to surge.  Unfortunately these securitization markets are what most major financial institutions had and have large positions in.  Some of these positions were on-balance sheet but also quite often not.  Thus you are seeing large on-balance sheet losses and the market panic caused by the spectre of even more massive off-balance sheet liabilities at many, if not all, major financial institutions.  

 

No one really knows what these toxic derivatives are worth.  Thus this first cause  turns on finding a way to value (price) these derivatives that a gun shy market can trust. No faith in value equals no sale, no matter how many Nobel Prize winning equations you have on your side.  In the meantime in the face of these paralyzed markets the government simply needs to seize the institutions that are illiquid due to their huge unrealized  losses on their derivative holdings. 

 

The second amplifying part of the econapocalypse is the inability of the sellers of insurance (read AIG) upon debt and derivatives  to meet what are essentially margin calls on their positions. As the value of the debt and/or derivatives  AIG was and is insuring plunges, AIG is contractually obligated to post cash collateral to its counterparties based on factors such as the risk of default and loss in value. 

Worse, AIG CDS contracts are the parchment barrier between liquidity and illiquidity for many financial institutions.  If AIG cannot make its contractual payments on these policies many of these institutions will no longer be able to keep their derivative losses off there books, leading to illiquidity and defaults (that AIG insured) and margin calls because of the change in credit risk.  The formerly lucrative CDS echo chamber thus grows into a roar that no one has been able to quell.  The administration's action on this front has been weak and is cause for concern.

   

Someone Please Kill AIG

Good scoop by the WSJ publishing a partial list of AIG CDS counterparties.  They also give a succint and clear description of the magnitude of the CDS problem.  Naturally, the counterparties on the AIG CDS contracts received funneled payments of roughly $50 billion from the federal AIG bailout funds.   It's the usual suspects, including Goldman, B of A, Deustche Bank, Merrill, Barclays etc.  European financial institutions  had large exposures.  The fear of course is that not bailing out AIG on its insurance contract obligations will force all their counterparties to book the losses on their toxic transactions that AIG sold them insurance on.  As long as the counterparties had a good faith belief that AIG would make an insurance payout on their financial transaction they didn't need to book it as a loss.  But those days are over and the government(s) need to force everyone to book their losses, letting the weak die and saving the strongest by whatever means necessary.  Not bailing AIG out when it was about to collapse last fall would probably have been a bad idea, but the time has come to stop propping up this stinking international heap of greed and shortsightedness. 

How much taxpayer money are we going to shovel into this piece of shit insurance company before we take it out back and shoot it?  Really.  The federal government is posting cash collateral to AIG's counterparties?  Why bother with the middleman AIG?   We already pissed away $173 billion dollars into AIG's bottomless pit.   And Citigroup?  A penny stock.   I voted for Obama and all but Krugman is right:  the administration's economic dithering and weak kneed fantasies of private/public cooperation lifting us out of this apocalypse instead of the bullet to the head of nationalization and good old fashioned bankruptcy (and why are they so averse to bankruptcy? all their "too big to fail" policies do is delay it at a higher cost) are fatally naive.  May I eat my words.

Institutional Idiocy

David Brooks has a wistful paean in today's New York Times extolling traditional institutions' affect upon our lives.  He ends by praising traditional institutions for often saving us from our weaknesses and giving meaning to our lives.  Putting aside for a moment the question of whether I want to be saved from my weaknesses or if I give a rat's ass about vacuous concepts like life's meaning, I can go both ways on his nostalgia for traditional institutions.

As a member of the bar, I find much that is useful in the traditions of my profession that I embrace.  For instance, I'm a big believer in our adversarial system of justice, where opposing parties duke it out in front of allegedly neutral fact finders.  I like the skeptical bent of our common law evidentiary system with its distrust of all things outside the scope of a witness's personal knowledge.  These traditions take a lifetime to master and profoundly change you as you learn them.  But one also has to remember that all traditions were new at one point, which means at some time they were an innovation supplanting another preexisting tradition.  And there are plenty of idiotic institutional traditions that should be obliterated but survive because they have powerful lobbies  of persons who have mastered their arcane byways and profit from knowing something that most find impenetrable.

Much of Anglo-American property law is a good example of this.  Why the basis of our modern property laws should consist of French & Nordic feudal law imported into England during the Norman conquest is beyond me.  Really, where else in modern life do you still refer to another person as your Lord, as you do whenever you refer to your landlord?  To a large degree our property law in this country is based on an agrarian world view that viewed land, as opposed to the buildings on it, as what was important. Without boring you with the details, the clash between the feudal agrarian world view and the modern world view causes the courts to make so many ridiculous contortions trying to reconcile the two world views that we'd all be better off if most of traditional property law was abolished and replaced by much more straightforward and modern contract law.  (I am not the first person to suggest this.)  But this won't happen anytime soon because that would put all those who've made their living learning the arcane byways of feudal property law out of a job.  

Which leads me to what I think is the problem with embracing tradition too tightly.  As often as tradition is rewarding and enriching, it also rewards and enriches entrenched interests who smother innovation with the outworn utilities of a bygone era.  Thus I would argue that it is better to engage and innovate within your tradition, sometimes even casting aside your tradition and starting anew, than to reanimate what is dead and of little use to anyone but the few who wring their profits from selling old wares.   

Wicked Economic News

I was a bit disturbed by an opportunity that came my way the other day but quickly got over it to take advantage of what is another informal sign of just how bad this financial crisis is. I was offered free tickets, through a stage manager friend on the show, to the hit Broadway show Wicked.   Now, being a downtown Beckett man, Wicked is not the type of show I'd normally see but I'm not above enjoying a well reviewed Broadway musical, particularly when the tickets are free.  But what occurred to me after I accepted the offer is that it's a show that has always been impossible to get comps to.  I have a lot of connections in the theater business and can usually get "house seats" (full price tickets held back for cast and crew) to any number of hard to get into shows, but getting comps to a show sold out months in advance like Wicked is not a normal state of affairs.  If there was going to be any recession proof show on Broadway, Wicked, and maybe Jersey Boys, was it.  And the fact that I'm getting unsolicited comps of previously hard to come by tickets makes me worry about the fate of my beloved New York City even more. 

The Architect's Turd

Karl Rove's defense of Bush's Presidential record in today's Wall Street Journal is a prime example of Rove's spinning technique: righteous moral indignation woven together with simple truisms presented as a tapestry of indisputable truth. If the piece wasn't the most read and emailed piece in today's journal, it wouldn't be worth reviewing, but it is, so it's worth tugging at the loose threads of this frayed fabric.
First off, I don't really care that Rove thinks that Bush is a decent man. This is an eminently debatable point that turns on one's subjective moral views as to what makes someone decent. Since 2001 I have thought that Bush was puerile,fatuous, vindictive, and petty, but that is neither here nor there anymore than what Rove considers decent. Let's review some of Rove's more objective claims of Bush presidential success.

1. "Mr. Bush was right about Iraq." Really? He was wrong that Iraq harbored weapons of mass destruction, he was wrong that Iraq had anything to do with 9/11, he was wrong about how much the war would cost in blood and treasure, and he was wrong about how long the war would take. Furthermore he failed to comprehend the geostrategic consequences of bogging us down in a discretionary war that has empowered the Iranians by liberating Iraq's Shia majority, vitiated our troop strength in our necessary war in Afghanistan, and distracted us from the real threat of the weapons of mass destruction developed by North Korea during our bungling in Iraq. If Rove thinks that Bush was right about Iraq because the surge worked then this just begs the question why Bush didn't deploy large numbers of troops in the first place when many, most notably General Shinseki, advised him to do so. It was only after years of bungling that Bush found the right strategy- the one he had ridiculed in the first place.

2. "Mr. Bush was right to establish a doctrine that holds those who harbor, train and support terrorists as responsible as the terrorists themselves." Is that why we supported dictator Musharraf for so long? Is that why we invaded Pakistan? Is that why we invaded Saudi Arabia, ground zero for terrorist financing? Oh wait, we didn't any of those things. N'uff said.

3. "At home, Mr. Bush cut income taxes for every American who pays taxes. He also cut taxes on capital, investment and savings. The result was 52 months of growth and the strongest economy of any developed country." This claim is my jaw dropping favorite. All I can say is, have you checked your 401(k) lately?

Rove is right that Bush deserves some credit for combating AIDS in Africa, let's give some credit where credit is due. The rest of the conservative fluff in the piece isn't really worth addressing, although I still doubt to this day that Bush ever has read the Constitution, so I don't know how you can credit him with picking judges that strictly interpret something he has never read or understood. Furthermore, the phrase "strict construction" is only salient for those with a weak grasp of the Constitution. Please explain to me how you "strictly construct" the 9th Amendment, or the Privileges and Immunities" clauses. Get real. But that's a rant for another day.